Chapter 8: Health Basics

Question 1

Accident and Health Insurance

Answer 1

A policy designed to cover losses due to injury or sickness

Question 2

Accidental Injury

Answer 2

A spontaneous event, unforeseen and unintended, resulting in injury

• Accidental Bodily Injury (Results)
• Accidental Means

Question 3

Accidental Results

Answer 3

Requires only that the injury be unintended and unforeseen

Question 4

Accidental Means

Answer 4

Requires both the injury and the cause of the injury to be unintended and unforeseen; considered more restrictive. This definition is not allowed in some states.

Question 5

Coinsurance

Answer 5

The cost sharing between the insurer and the insured stated as a percentage after the deductible has been met.

**Deductible plus coinsurance is policyowner’s responsibility

Question 6

Copayment

Answer 6

A stated dollar amount paid by the insurer per claim

Question 7

Deductible

Answer 7

The initial amount payable by insured before insurance benefits apply

Question 8

Morbidity Table

Answer 8

The mathematical likelihood of an illness, injury, or disability occurring. The morbidity table is comparable to the mortality table used for life insurance rating.

Question 9

Preexisting Conditions

Answer 9

Prior medical conditions for which the applicant has received, or should have received medical advice or treatment within a specified period before the effective date of a policy - generally within the past 12 months

Question 10

Probationary Period

Answer 10

Time period from the beginning of the policy before losses due to sickness are eligible to be covered

Question 11

Sickness

Answer 11

Illness or disease diagnosed while the policy is in force

Question 12

Subrogation

Answer 12

Transfers an insured’s legal right of recovery to the insurer that has paid a claim. This prevents the insured from collecting twice for the same loss and holds the responsible third party accountable for the loss

Question 13

Disability Income (Loss of Time or Income)

Answer 13

Contract that pays weekly or monthly benefits due to injury or sickness if an insured is unable to perform all or some of the duties of their job. The benefit is either a percentage of the insured’s past earnings or a flat dollar amount.

Question 14

Medical Expense

Answer 14

Contract that covers the various expenses an insured may incur due to an accident or sickness

Question 15

Dental Expense

Answer 15

A form of Medical Expense health insurance covering the treatment and care of a dental disease and injury affecting the insured’s teeth

Question 16

Long-Term Care Expense

Answer 16

Product designed to provide coverage for personal care services in a setting other than an acute care unit of a hospital, such as a nursing home or event one’s home.

Question 17

Accidental Death and Dismemberment

Answer 17

Pays the principal sum or face amount, upon accidental death, loss of sight, or loss of 2 limbs. It pays the capital sum per policy schedule (up to 50% of the face amount) for the loss of vision in 1 eye or loss of 1 limb. It may be a standalone policy or added as a rider to a Disability Income, Medical Expense, or a Life Insurance Policy.

Question 18

Home Health Care

Answer 18

Benefits for limited nursing services, home health aide, light housekeeping, and related expenses may be available in both medical expense insurance and long-term care insurance

Question 19

Field Underwriting: Completing the Application

Answer 19

• A formal request for coverage
• Producer’s responsibilities
• Required signatures
• Changes in the application
• Incomplete application
• Collect initial premium with the application
• No premium collected - Statement of Good Health

Question 20

Field Underwriting Disclosures

Answer 20

• Notice of Information Processes - FCRA (Fair Credit Reporting Act)
• Disclosure at Point of Sale - HIV Testing
• Confidentiality - HIPAA

Question 21

Individual Underwriting Factors

Answer 21

Age, Gender, Tobacco Use, Occupation and hobbies (degree of risk - if more than one occupation, the most hazardous will be used), Physical condition, Moral or financial hazard, Health history, Foreign travel/residence, Other insurance, Plan applied for

Question 22

Underwriting

Answer 22

The process of selection, classification and rating

Question 23

Application Sections

Answer 23

Part I - General (i.e. gender, marital status, residence, DOB, occupation, and past/present insurance

Part II - Medical (i.e. questions pertaining to medical background, past/present health, any medical visits, hospitalizations, or surgeries in recent years, and medical status of immediate family members, including their ages and causes of death.

Question 24

Medical Examination

Answer 24

Records of an examination conducted by a medical professional regarding the applicant’s present health. Typically requested by insurer and performed at insurer’s expense.

Question 25

Medical Information Bureau (MIB)

Answer 25

Primary purpose is to collect adverse medical information about an applicant’s health, supported by insurance companies, and act as an information exchange. Report cannot solely be used to decline an applicant for insurance.

Question 26

Inspection Report (Consumer Investigative Report)

Answer 26

A general report of the applicant’s finances, character, morals, work, hobbies, and other habits. This can be completed by the insurer or a third-party provider. The applicant must be made aware of any information gathering and has rights provided under the FCRA (Fair Credit Reporting Act.)

Question 27

Agent (Producer) Report

Answer 27

A personal statement submitted by the producer to the insurer regarding any personal knowledge of the applicant, including information observed during the application process. This information remains confidential between the producer and the insurer, and it does not become part of the entire contract.

Question 28

Sources of Underwriting Information

Answer 28

• Application (Part 1 & Part 2)
• Medical Examination
• Attending Physician Statement (APS)
  Medical Information Bureau (MIB)
• Inspection Report -(Consumer Investigative Report)
• Agent (Producer) Report

Question 29

Individual Selection Criteria

Answer 29

The insurer uses all of the information collected by the field underwriter and other sources to determine the acceptability of an individual. It is ultimately the home office underwriter’s responsibility to determine if this individual meets all the underwriting requirements set forth by the insurer.

Question 30

Nonmedical Application

Answer 30

A policy requested when the applicant’s age, medical history, or amount of coverage does not require a medical examination for underwriting. Health questions on the application are asked by the producer and are the only medical information required.

Question 31

Assumptions and Calculations of Premiums

Answer 31

Premiums are always paid in advance, are invested, and earn interest for the insurer.

Factors in premium determination include:

• Morbidity
• Interest
• Expenses

Question 32

Morbidity

Answer 32

The predicted number of medical claims in any given year for a specific group of insureds. Morbidity Tables are used to provide statistics that give the company a basic estimate of how much money it will need to pay for medical and disability claims each year.

Question 33

Interest

Answer 33

Companies invest premiums in bonds, stocks, mortgages, real estate, etc., and assume it will earn a certain rate of interest on these invested funds.

Question 34

Expenses

Answer 34

The amount charged to cover each policy’s share of expenses of operation, salaries, commission, and cost of doing business (expense loading.) This can vary from company to company based on its operations and efficiency.

Morbidity - Interest = (Net Premium) + Expenses = Gross Premium

Question 35

Modes or Premium Payment

Answer 35

The frequency in which a premium payment may be made. Premiums can be paid monthly, quarterly, semi-annually, and annually. The more frequently the premium is paid, the higher the premium, due to company’s administration costs and loss of investment income.

Question 36

Issued as a Preferred Risk (Issue Preferred)

Answer 36

Coverage at lower rate (is lower than average risk).

Question 37

Issued at Standard Risk (Issue Standard)

Answer 37

Coverage at rate quoted

Question 38

Issued at Substandard Risk (Issue Substandard)

Answer 38

Exclusions or Reductions

• Issued rated-up
• Issued with exclusions/limitations

Question 39

Issued Rated-Up (Surcharge)

Answer 39

Issue the coverage requested, but at a higher rate. Higher premiums are required due to the greater potential for a larger number of claims.

Question 40

Issued with Exclusions/Limitations

Answer 40

May be temporary or permanent; limits the insurer’s obligation to pay. The rider used to exclude coverage for existing conditions is sometimes referred to as an Impairment Rider.

Question 41

Rejection

Answer 41

The policy is not issued and will be declined since the applicant is considered an excessive risk.

Question 42

Conditional Approval or Receipt

Answer 42

The premium paid by the applicant is the Offer and the policy issued by the insurer is the Acceptance.

Insurer will send policy to the producer for delivery, but coverage is in effect as of the date of application, if it is accompanied by premium, or date of completed medical exam, if required.

Question 43

Trial Application

Answer 43

If no initial premium is paid, the application is considered a trial. The Policy then becomes the Offer and, upon delivery, the premium is the Acceptance.

No coverage until a Statement of Good Health (stating that application is still true/whether applicant’s health has changed since application) and premium are collected at the time of delivery

Question 44

Agent’s Responsibility to:

Answer 44

• Explain policy: Provisions, Riders, Exclusions and Ratings

- Outline of coverage

Question 45

Replacement

Answer 45

If replacing an individual health or disability policy, care must be taken to compare limits of coverage, benefits, and exclusions.

The process of replacement includes canceling an old policy once a new policy has been purchased. The old policy should not be canceled before the new policy is issued, otherwise this could leave the applicant without coverage.

Question 46

Errors and Omissions

Answer 46

Professional liability insurance covering liability of agent. Claims are filed due to client reports (complaints) for a number of reasons - the two most common are:

• Inadequacy, failing to obtain proper type or amount of coverage for a client.
• Negligence, quoting inflated information or misrepresenting a plan of coverage neglecting the effect the information might have on the client at a later date. Producer may be guilty of negligence whether the mistakes are intentional or unintentional.

Question 47

Attending Physician Statement (APS)

Answer 47

Used in cases in which the individual application and/or medical reports reveal conditions of which more information is required. This statement is completed by the applicant’s personal physician treating a specific condition. An applicant must sign a written release to enable a release of the APS.

Question 48

Morbidity Tables

Answer 48

Used to provide statistics that give the insurance company a basic estimate of how much money it will need to pay for medical and disability claims each year.

Question 49

Impairment Rider

Answer 49

Rider used to exclude coverage for existing conditions